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Addition made on the basis of Presumption is not Justifiable: ITAT [Read Order]

Cross-Examination - ITAT - Taxscan

The Income Tax Appellate Tribunal ( ITAT ) Hyderabad held that addition made on the basis of presumption is not justifiable. When the assessee had furnished the details of the payment to the Accountant towards accounting charges it cannot be simply rejected without verifying the facts. Ld. AO directs to delete the addition made for invoking the provisions of section 194J of the Income Tax Act and Section 40(a)(ia) of the Income Tax Act.

The brief facts of the case are that the assessee is an individual engaged in wholesale trade of oil and lubricants filed its return of income admitting taxable income. During the course of scrutiny assessment proceedings, it was observed by the AO that the assessee has debited in his P & L Account an amount towards market support expenses. It was further observed that the aforesaid amount was embedded under the head ‘current liabilities’ in the balance sheet disclosed.

On query, it was explained by the assessee before ITAT that the outstanding amount was towards annual payment due to marketing staff salary for the relevant previous year 2012-13 which was subsequently paid in the previous year 2013-14. On verifying the payment vouchers, it was observed that the payments were made in the period April 2013 to June 2013. Further, the assessee could not produce evidence that the expenditure was incurred was towards salary by furnishing attendance register, copies of appointment order etc. Therefore, the Ld. AO presumed that the expenditure was incurred towards marketing commission and since the tax was not deducted at source, he invoked the provisions of section 194H and 40(a)(ia) of the Act and thereby disallowed the expenditure. On appeal, the Ld. CIT (A) confirmed the order Ld. AO.

The appellant submitted that the amount was paid to employees who were selling the products marketed by the assessee. It was further submitted that these entire employee’s estimated income was below taxable limit and therefore, deduction of Tax U/s. 192 of the Act is not applicable.

It was further argued that in any case, the provisions of section 194H of the Act would not be applicable in the case of the assessee because the payments were made in the form of salary to the employees of the assessee who were assigned with the task of marketing the products dealt by the assessee. It was, therefore, pleaded that the disallowance made by the AO invoking the provisions of section 40(a)(ia) of the Act may be deleted.

The ITAT bench comprising of Judicial Member P. Madhavi Devi, and Accountant Member A. Mohan Alankamony observed that AO has rejected the submission of the assessee for treating the expenditure incurred for salary simply for the reason that the assessee had not maintained salary register and appointment letters/agreements. It is pertinent to mention that in small business houses such record is not normally maintained and they are not mandatory.

The assessee has also produced the vouchers with respect to the payment made to his employee but, they were also rejected by the Revenue Authorities without valid reasons. The addition made on the basis of presumption is not justifiable. When the assessee had furnished the details of the payment to the Accountant towards accounting charges it cannot be simply rejected without verifying the facts. Therefore, direct the AO to delete the addition made for invoking the provisions of section 194J and 40(a)(ia) of the Act. In the result, the appeal of the assessee is allowed.

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